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Blending Low-Volatility with Momentum Anomalies

Posted on April 10, 2024 By 
The low volatility anomaly in the stock market refers to the phenomenon where stocks with lower volatility tend to provide higher risk-adjusted returns compared to their higher volatility counterparts, contrary to traditional financial theories. Various explanations have been proposed for this anomaly, including investor behavioral biases, such as overestimating the …
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Is Gold a Strong Hedge and a Safe Haven Asset?

Posted on April 3, 2024 By 
Gold plays an important role as a diversifier in investment portfolios due to its unique characteristics. Historically, gold has exhibited a low correlation with other asset classes such as stocks and bonds, making it an effective hedge against market volatility and economic uncertainty. During times of economic downturns or geopolitical …
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Intraday and Overnight Volatility Clustering Effect

Posted on March 30, 2024 By 
Volatility clustering is a phenomenon observed in financial markets where periods of high volatility tend to cluster together, followed by periods of low volatility. This pattern suggests that extreme price movements are not randomly distributed over time but rather occur in clusters or groups. Volatility clustering has undergone extensive study …
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Avoiding Overfitting: Searching for Parameter Plateau

Posted on March 26, 2024 By 
A serious problem when designing a trading system is the overfitting phenomenon, wherein the system is excessively tuned to historical data. Overfitting occurs when a trading strategy performs exceptionally well on past data but fails to generalize to new, unseen data. This can lead to false positives and inflated expectations, …
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Information Content of Leveraged ETFs Options

Posted on March 22, 2024 By 
Leveraged ETFs, or exchange-traded funds, are investment funds designed to amplify the returns of an underlying index or asset class through the use of financial derivatives and debt. These ETFs aim to achieve returns that are a multiple of the performance of the index they track, typically two or three …
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A Pricing Model for Earthquake Bonds

Posted on March 18, 2024 By 
A catastrophe bond, commonly referred to as a cat bond, is a type of insurance-linked security that allows insurers and reinsurers to transfer the risk associated with catastrophic events, such as natural disasters, to capital market investors. These bonds are typically issued by insurance companies or special purpose vehicles (SPVs) …
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Can We Predict a Market Correction?

Posted on March 14, 2024 By 
A correction in the equity market refers to a downward movement in stock prices after a sustained period of growth. Market corrections can be triggered by various factors such as economic indicators, changes in investor sentiment, or geopolitical events. During a correction, stock prices may decline by a certain percentage …
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Market Ecology and the Role of Trading Strategy Diversity in Market Stability

Posted on March 10, 2024 By 
Market ecology refers to the complex interplay and dynamics among various participants, assets, and factors within financial markets. Just like in natural ecosystems, different entities in the market interact with each other, creating a delicate balance that can affect asset prices, trading volumes, and market volatility. Market ecology theory views …
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Quantifying Stocks Lead-Lag Relationships

Posted on March 6, 2024 By 
The lead-lag relationship between stocks refers to the phenomenon where the movement of one stock precedes or lags behind the movement of another stock. This relationship is often analyzed in the context of stock returns and can provide valuable insights into market dynamics and investor behavior. For instance, if Stock …
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